Sector-wide wage deals put SMEs on the back foot

Big business and major unions represent a powerful price-setting cartel. The situation was highlighted last week when the National Employers Association of SA (Neasa), made up of small and medium-sized enterprises (SMEs), rejected a wage agreement reached between the major players in the labour arena to end the month-long strike in the steel and engineering industry.

The Steel and Engineering Industries Federation of Southern Africa and the National Union of Metalworkers of SA (Numsa), along with other unions, agreed to an increase of 10 percent each year for the next three years. The level is well above the 6.6 percent inflation rate recorded in June and Neasa says the hike is more than its members can afford and is therefore unsustainable.

Neasa said it had not been party to the agreement with Numsa and the five other unions as it had been excluded from the negotiations. It declared a lockout of the workforce until its voice had been heard.

Neasa chief executive Gerhard Papenfus told the SABC that employers must be able to say no. “We cannot negotiate this industry into history. This industry is in a downward spiral and at a huge speed. We are losing jobs constantly.”

Neasa, according to its website, has 23 000 members across 80 sectors and represents about 3 000 SMEs in the steel and engineering sector.

Economies of scale give big businesses a substantial competitive edge. They are able to undercut smaller competitors on price and can also more easily absorb the impact of above-inflation wage increases, year after year. Smaller businesses often have narrow profit margins and, because they lack compensating large volumes of turnover, they can be pushed into a loss situation when their costs rise sharply.

With the employment rate up to 25.5 percent in the second quarter from 25.2 percent in the first, the potential closure of any businesses should be a concern – to trade unions as well as everyone else with a stake in the economy.

A report released two years ago by JPMorgan Chase described SMEs as “pivotal drivers of job creation, providing approximately 70 percent of national employment”. It noted also that about 50 percent of SMEs failed within the first two years and 85 percent within the first 10.

The government has recognised both the importance of SMEs to job creation and their vulnerability and this year created a dedicated ministry to support the development of small business.

One way the government could help is to change the law so wage agreements are not automatically extended throughout an industry. The arbitrary imposition of sector-wide agreements has been a contentious issue for decades. But whether politicians will risk alienating the powerful trade union lobby by limiting its clout remains to be seen.

Whatever the outcome of the stand-off in the metal and engineering sector, SMEs across all industries battle to make their voices heard.

But it has to be said, small business often shoot themselves in the foot by failing to train staff properly. With fewer resources than big companies, they tend to downgrade the skilling of employees. Too often a potential customer is greeted with boredom or a surly face. This is particularly visible in the services sector where the interface with the public is direct. But any business risks custom when employees don’t do their job.

Allon Raiz, the chief executive of the prosperator Raizcorp, says: “Small businesses often undervalue the need to train people. If you don’t teach your staff the importance of customer service, you will suffer the consequences. It is that first interaction with a business that defines a company in the mind of the customer.”

A prosperator, a term coined by Raiz, is a progression from an incubator and an accelerator in the development of SMEs.

Raiz says small companies can compete for staff by creating a career path for employees and skilling them systematically and progressively for promotion from the start. “For example, we took on someone as a cleaner, promoted her to tea lady and then moved her up to be a receptionist.”

In that role she was taught how to make visitors feel welcome, forging bonds by remembering names and preferences when offering tea or coffee. In that way she played an important role in the securing of customer loyalty.

Creating career opportunities such as these help SMEs compete for scarce skills.

Innovation is a way nimble, small-scale companies can take on their bigger rivals.

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